The CHIPS and Science Act, a bold initiative signed by President Joe Biden in August 2022, has been steering the course for the semiconductor industry in the United States for over two years now. This significant legislation aimed to boost domestic production and bring semiconductor giants like TSMC, Samsung Electronics, Intel, GlobalFoundries, SK Hynix, and Micron to invest heavily in the US.
These companies have been lured by enticing incentives, including subsidies, loans, and tax breaks, to help alleviate the financial burden of their massive production expansion projects. A report released in May 2024 by Boston Consulting Group and the Semiconductor Industry Association predicts that the US wafer fab capacity is set to triple by 2032, climbing from a 10% global share to 14%. Without the CHIPS Act, this share might have plummeted to just 8%. However, these ambitious investment efforts aren’t without risks.
A major shadow has been cast over the industry with former President Donald Trump’s victory in the November election, fueling concerns about potential policy changes under a new administration that could cause companies to rethink their investment strategies.
Intel, a hallmark of US semiconductor prowess, was expected to spearhead a revival of the domestic supply chain. However, its unprofitable foundry division—a focal point of its IDM 2.0 strategy—has become a major stumbling block. This, coupled with the resignation of CEO Pat Gelsinger amidst company instability, has left Intel grappling with financial woes despite securing up to $7.865 billion in CHIPS Act subsidies. The attainment of these funds is linked to specific milestones, which casts doubt on whether Intel can fulfill its ambitious expansion objectives given the challenges.
Microchip Technology provides a stark illustration of the hurdles inherent to the CHIPS Act. Initially seeking $162 million in subsidies to boost microcontroller production and other semiconductor technologies, Microchip experienced a major turnaround in its strategy. Following significant revenue challenges, the company reinstated former CEO Steve Sanghi as interim head in November 2024. Known for guiding Microchip to unparalleled financial performance in the past, Sanghi took decisive actions by shutting down the Fab 2 wafer facility in Arizona and halting subsidy negotiations with the US government.
This pivot from the CHIPS Act incentives marks a critical dent in the US semiconductor strategy. Sanghi highlighted that when Microchip initially requested the subsidy, the industry was bracing for long-term capacity shortages. Now, faced with a stark overcapacity, the landscape has transformed. Sanghi’s insights reveal that government subsidies cover only a minimal portion of the expansion expenses, leaving companies to finance the bulk of these cost-heavy operations.
The semiconductor sector’s notorious boom-and-bust cycles make long-term financial forecasting a daunting task, complicating strategic planning. Despite the allure of subsidies, they fall short of addressing the considerable financial commitments necessary. Companies frequently adjust investment schemes in response to shifting market conditions, which often leads to deviations from their preliminary commitments to the government. As funds continue to be distributed based on misguided assumptions, the CHIPS Act’s ultimate influence might not match its grand ambitions.
